LP Scorecard: Washington’s venture investments lag most of the rest

Washington State Board of Investments has made a big bet on venture, and so far it hasn’t panned out as well as many of its other alternative strategies.

The board’s 64 venture funds generated an 8.51 percent net internal rate of return as of year-end 2017.

That compares with the 13.19 percent generated by its entire alternative-investments portfolio, composed of 339 alternative-investment funds.

The venture portfolio, to which the state has committed almost $4 billion, placed seventh out of nine alternative strategies.

First place went to the corporate financing/buyouts-mega category, which generated a net IRR of 15.77 percent across 42 funds.

Growth equity came in second, with 15.58 percent across 29 funds, followed by corporate financing/buyouts-midsized with 13.73 percent across 73 funds; corporate financing/buyouts-small-sized with 11.62 percent across 21 funds; corporate financing/buyouts-large-sized with 11.51 percent across 56 funds; and distressed debt with 9.58 percent across 25 funds.

Only mezzanine, with a net IRR of 8.44 percent across 11 funds, and special situations, with 6.55 percent across 13 funds, lagged venture.

One caveat: This analysis is based on interim performance and includes funds, including many younger than five years old, whose ultimate performance won’t be known for several years.

While venture capital as a whole hasn’t done fantastically well for Washington State, many individual venture funds are among the best-performers in the alternatives portfolio (see accompanying table).

Venture funds accounted for the first, third, fourth and seventh-best performing funds by net IRR.

Menlo Ventures VII LP won the top prize with a net IRR of 135.58 percent. In third overall was Austin Ventures IV LP at 73.23 percent and Oak Investment Partners VIII LP followed right behind at 55.33 percent.

On the other hand, venture funds also made up almost half the 30 lowest-performing investments across the portfolio.

The second worst performer across the whole alternatives portfolio was KBA Partners II LP, with a net IRR of -42.07 percent, close behind Telecom Partners III LP’s -40.56 percent.

Corporate finance/buyout-mega investments blew away VC.

In the corporate finance/buyout-mega category, the best-performing fund was Hellman & Friedman Capital Partners VIII LP, reeling in a net IRR of 51.8 percent.

Overall, the state committed a total of $17 billion to corporate finance/buyout-mega funds, generating an investment multiple of 1.6.

Warburg Pincus, with its Warburg Pincus Ventures, took top honors in the growth-equity category with a net IRR of 48.2 percent.

The state has committed almost $7 billion to 29 growth-equity funds, which have generated an investment multiple of 1.6.

Considering its overarching strategy, Washington may not be overly concerned with how its venture investments have been doing to date.

“One of the profound lessons of the past is that a steady and determined focus on one’s investment plan, combined with the courage to stick with it, will be rewarded,” Washington said on its website.

“Diversification really is the best response to weathering market volatility and uncertainty.”

Executives at Washington declined additional comment.

Overall, the state has committed $57 billion across 338 funds and generated almost $55.5 billion in distributions.

LP Scorecard Washington